If you’re involved in a personal injury case where your compensation could be sizable, you’re probably wondering how big a bite the tax man will take if the case is settled in your favor. The good news is, in Florida, the answer to the question, “Are personal injury settlements taxable?” is usually “no.” However, there are some notable exceptions. Here’s what you should know about different types of damages and their “taxability”:
Personal injury and illness
Costs associated with an injury or illness, including medical costs, lost wages, attorneys fees and more can be compensable under many personal injury cases, and these costs are not usually taxable, since the IRS considers them as compensation for the actual damages associated with the injury or illness you’ve suffered, and not as an extra “windfall” of cash.
Punitive damages
While losses due to personal injury or illness are not taxable, any damages or compensation awarded for punitive damages generally are taxable. Punitive damages are not awarded for specific accident-related costs, but more to deter the defendant from acting in a negligent manner in the future. When punitive damages are sought, your attorney will generally ask for any award made by a court to be divided into two types of damages – compensatory (meaning compensation specifically for the injury or illness) and punitive.
Emotional distress
Since the IRS generally only considers physical injury or illness as being compensable damages, any amounts awarded for emotional distress will be subject to federal taxes. Awards made for employment discrimination are also subject to federal taxes.
Future Earnings
This is where it can get complicated, and where working with your attorney will help ensure the best outcome for your needs. If your case seeks and receives compensation for lost future wages, it can be calculated in different ways, and the tax implications can also be different.
For instance, it generally works out better for you if your before-tax income (or gross income) is used in future earnings calculations than if a net income figure is used. This is where having a skilled and experienced personal injury attorney can really help by working hard to have your damages based on your gross earnings, not your net earnings.
Work with a Leading Tampa Personal Injury Law Firm to Protect Your Rights
At Dennis Hernandez & Associates, we’ve helped many clients from Tampa and throughout Florida protect their rights, including helping them craft the best settlement options for their current and future needs. If you’ve been injured as a result of someone else’s negligence or fault, call our office today at (813) 250-0000 and schedule a free consultation to learn how we can help you get the compensation you deserve for your personal injury claim.
